It’s not yet a grocery price war in Australia but prices are under pressure as supermarkets trim their once fat margins to compete with cheaper competitors such as Aldi.
Woolworths and Coles are dropping prices on the shelves, especially those for private label and home brand products, according to the latest analysis by Deutsche Bank.
This chart, part of a note to clients by Deutsche Bank, shows the impact of recent “aggressive” price cuts by Woolworths:
“Woolworths is investing heavily in branded product pricing which is likely the segment where its prices became too high,” write Deutsche Bank analysts Michael Simotas and Daniel Wan in a note to clients.
“Both major chains have continued to reduce private label prices and are seeing market wide fresh deflation.”
The two big players, Coles and Woolworth, are under pressure from smaller supermarket operators. Aldi has grabbed 11% of the east coast market and is about to invest heavily in building new supermarkets.
Deutsche Bank’s supermarket study shows pricing in the June quarter was flat for the year, deteriorating from a 2.2% rise in the last quarter.
This is the weakest prices in the index have been since September 2013.
Packaged grocery prices in the June quarter were flat at -0.2% compared to 1.8% in the previous quarter.
Overall, prices of private label products fell 6.1% in this quarter. Fresh food prices dropped 1.6% and this is expected to continue in the next quarter.
“We continue to harbour some concern regarding the impact Woolworths’ price investment and the potential reaction from Coles could have on industry profitability,” says Deutsche Bank. “While there remains some risk of a price war, at this time it seems Coles has not attempted to match Woolworths aggressively.”
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